27 Aug 2018
Burgeoning China Homestay Sector Offers Rapid Return on Investment
While letting out a spare room to tourists began as a sideline for a small number of mainlanders, it has spiraled into a full-time business for many, with the country now seen as set to become the world's biggest homestay market.
Over recent years, the homestay market has really started to take off in many mainland cities, with Guangzhou proving no exception. Essentially, similar to the model pioneered in the west by California-headquartered Airbnb, this sees homeowners rent out their spare rooms to short-stay visitors as a better value alternative to hotels or guest houses.
In Guangzhou, the capital of the southern China Guangdong province, it is the chance to stay in some of the city's older buildings that most appeals to visitors. In particular, verandaed homes in Xiguan and villas in Dongshan, two of the city's more historic districts, are particularly sought out.
In August, the mainland's peak tourism month, Airbnb had more than 300 Guangzhou homestays listed. Many of them, however, were fully booked while others had only a limited number of dates available. In another sign of the popularity of the homestay option, a quick walk around the most popular districts – Xiguan, Shangxiajiu Pedestrian Street and Dongshankou – clearly shows how many rooms are available and just how many tourists are already availing themselves of this comparatively low-cost and highly convenient accommodation option.
Set in a classically styled heritage building on Guangzhou's Baoyuan Road, T G Studio is just 10 minutes' walk from many of the most popular local tourist attractions, including the Clan Chen Ancestral Hall and Shangxiajiu Pedestrian Street. Equally important, there is also a substantial number of restaurants close to hand.
According to Lin Biyun, the homestay's manager, visitors staying at T G Studio get a firsthand experience of the traditional Xiguan way of life. On top of that, they also get to enjoy the unique design of the accommodation.
Explaining the studio's appeal, she said: "When we first leased the site a few years back, we went out of our way to make sure that we kept the courtyard intact. To maintain its authenticity, we sourced many of its fittings and decorations from semi-demolished or abandoned buildings from about the same period.
"We also used old black bricks and scratched patterned floor tiles to maintain the heritage feel. I firmly believe that this kind of attention to detail and the creation of something unique is extremely important if you want to succeed in Guangzhou's increasingly competitive homestay market."
T G Studio offers 13 guest rooms across four floors. In order to maintain the period feel within the building, many of the ornaments and items of furniture were purchased at one of the city's antique markets and then allocated to the guest rooms on a themed basis.
One Guangzhou homestay that has become something of a local internet sensation due to its own unique approach to the sector is Chensi Jingshe. Set on Enning Road, one of the city's older thoroughfares and a place renowned for its craftsmen and traditional fare, this multi-verandaed site is run by Mu Mu, a late-20s veteran of the sector and a former student of Nepalese Buddhism.
She was among the first in the city to embrace the homestay concept, starting out when there were just two or three similar facilities in Guangzhou. Now, acutely aware of the level of competition, she is determined that Chensi Jingshe's unique style will ensure it stays in business.
The accommodation at Chensi Jingshe stretches across four floors and comprises three private rooms and two shared facilities. Additionally, the top-floor room gives access to a private rooftop space.
The building's unique look owes much to the work of Mu and her cousin, who initially set about refurbishing it in a notably rugged style, with decorative glass incorporated throughout. Explaining the thinking behind its distinctive look, she says: "When the sun strikes the building, all of the glass shines with a unique brilliance, a feature that has delighted many tourists. After being in this sector for such a long time, we are well aware that you have to be that little bit different if you want to have a sustainable business."
With competition in the homestay market increasingly intense, many operators have developed specific approaches to staying in profit, including maintaining a flexible tariff system. At Chensi Jingshe, for instance, rooms are let out at three different rates – RMB380 per day during the week, RMB480 a day at the weekend and RMB600 per day over a holiday period, with these charges occasionally revised in line with the prevailing market conditions.
According to Mu, at these rates she is able to stay comfortably in profit, with all her costs covered. This includes the RMB300,000 that was invested in refurbishing the building for homestay use and the RMB15,000 monthly rent. Since launching, it has maintained an average occupancy rate of about 70% every month.
As a way of diversifying its income sources, Chensi Jingshe also rents out its shared spaces for painting classes, film screenings, wine tastings and similar events. This allows it to both widen its business scope and to promote its facilities to an extended number of potential guests.
Despite the relatively high start-up costs, many operators maintain that homestays offer an attractive return on investment. Highlighting this, Yuan Yuan, the owner of Diyi Bieshu (or Villa No.1) in Dongshankou, one of the city's oldest districts, outlined the costs – in terms of both time and investment funding – of first setting up her business.
Initially, she spent five months just redecorating the property. This saw its walls, floor tiles and windows all refurbished in the classic style of 1950s' Guangzhou homes. On top of the RMB7,500 monthly rental on the 150 sq m property, she also spent RMB40,000 on restoring the building. Thankfully, with the homestay generating a monthly profit of about RMB20,000, it took her just four months to fully recoup her initial investment.
Buoyed by these profits, she then reinvented a vacant property that she owned – a 30 sq m studio flat adjacent to Guangzhou Park – as another homestay, which then generated monthly returns of about RMB2,200. Typically, for a homestay apartment, she can charge a minimum of RMB300 per night, giving her a monthly turnover of RMB9,000 in the high season, falling to between RMB5,000 and RMB6,000 in the low season.
Based on her experience, she believes that, as long as the accommodation is well-designed, the location is good and the property has something a little different to offer, it is not difficult to run a homestay as a profitable business. Indeed, although she launched her first homestay property purely as a sideline to her primary business activities, the return has been so good that, together with a number of her friends, she has formed a specialist homestay company that now has investments in Beijing, Shanghai, Chengdu and Xian.
As well as providing tourist accommodation, a number of homestays have also tapped into a secondary revenue stream as sites for location shoots by photographic studios and product design companies, with many of them attracted by the unusual architectural or design elements of such properties. One business that has done particularly well out of this is Jiandi Zhiwuyuan (Jiandi Botanical Garden), a standalone villa set on Shangxiajiu Pedestrian Street, an area renowned for its historic architecture and traditional shopping outlets.
Once the home of a renowned Cantonese opera singer, the villa is something of an oasis of calm in a relatively bustling neighbourhood. According to Deng Deng, the site's manager, many couples are keen to use the villa as the backdrop to their wedding photography, while a number of businesses have opted to use it as the setting for their publicity shots. With the space rented out by the hour for such purposes, Deng says this helps keep profits up when seasonal accommodation bookings are down.
As well as their distinct design features, many of the homestays also give guests access to a variety of complementary add-on facilities. T G Studio provides a variety of daily necessities, including tissues, bottled water, tooth brushes, umbrellas and certain commonly required medicines. These are available, free of charge, from its first-floor front desk. As Guangzhou is highly regarded for the quality of its cuisine, a guide for would-be gourmets is wall-mounted in the homestay's reception area, allowing guests to quickly determine the best local place to eat.
Over at Diyi Bieshu, Yuan provides kitchen appliances and both Chinese and western style tableware, allowing guests to prepare their own meals if they so desire. There is also a washing machine and a rooftop laundry drying space.
At Jiandi Zhiwuyuan, Deng gives guests the option of either renting individual rooms or booking the whole house, a popular option during holiday periods. Whatever the nature of the booking, all guests have access to kitchen utensils, tableware, washing machine and other household facilities, making it a very family-friendly option for many tourists.
Despite the rapid growth of the homestay market – with a new, more localised version of Airbnb having got the official okay from the mainland authorities while a number of domestic equivalents have also emerged – the sector is still seen as operating in something of a legal vacuum. While many cities and provinces have enacted local legislation, at a national level a number of ambiguities with regard to market access and regulatory requirements remain. With China seen as potentially the world's biggest homestay market, there are many within the sector who believe proper legal oversight and clear guidelines cannot come too soon.
Xing Bin, Special Correspondent, Guangzhou